Singapore is reviewing financial sector regulations to reduce shocks to the system, its Prime Minister Lee Hsien Loong said on Thursday.

He said it is unlikely a bank in Singapore will fail, but the authorities would remain alert to any contagion or systemic risk from a global financial crisis that has driven the Southeast Asian city-state into its worst ever recession.

"We are reviewing our regulations," he said at a dinner to mark Standard Chartered's 150th anniversary in Singapore. "Our basic framework has worked well, but we are scrutinising the system to minimise vulnerabilities."

Singapore on Tuesday reported its non-oil domestic exports fell 35 percent in January from a year ago -- the worst performance on record -- and the government expects the economy to shrink by up to 5 percent this year.

"We expect our economy to have a very difficult year ahead," Lee said. "We must remain vigilant."

Asian banks largely escaped the credit storm that badly damaged Western banks, but are now threatened by rising bad loans due to an economic downturn in Asia and lower fees from crippled capital markets.

Singapore's biggest bank DBS Group reported last week a bigger-than-expected 40 percent drop in quarterly profit, its worst results in three years, while Oversea-Chinese Banking Corp (OCBC) saw a 30 percent drop in profits this week as the downturn boosted bad debt charges.

Many Singapore and Hong Kong investors affected claim they were told the investments were relatively safe and that they had been asked to buy the products when they went to renew their fixed deposits.

Financial institutions that sold the Lehman-linked structured investments include DBS, Hong Leong Finance, UOB Kay Hian, OCBC Securities, a unit of OCBC, and ABN AMRO, now part of Royal Bank of Scotland.

"We need new rules on leveraging and gearing, including for non-bank institutions, and tighter controls on banks' proprietary operations. Regulators also need to develop procedures to ensure that financial institutions manage liquidity risk better."